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Procter & Gamble Is Now A Top Pick At Morgan Stanley

Procter & Gamble Is Now A Top Pick At Morgan Stanley
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Procter & Gamble Co (NYSE: PG) shares continue trading at a "sizable" discount to peers, and this trend should reverse in 2019 and beyond, according to Morgan Stanley.

The Analyst

Analyst Dara Mohsenian upgraded Procter & Gamble from Equal-weight to Overweight with a price target lifted from $91 to $106. The research firm named the stock as its top pick in the home and personal care sector.

The Thesis

Procter & Gamble's stock is trading at a notable 11-percent discount to its HPC peers on a P/E basis and only outperformed the S&P 500 index by a "muted" 400 basis points in 2018, Mohsenian said in the Thursday upgrade note. (See his track record here.)

Looking forward to 2019 and beyond, multiple catalysts should result in the stock outperforming its peers, the analyst said. 

First, Procter & Gamble's reputation of delivering "subpar" 1-2-percent organic topline growth has likely come to an end, as the company should show approximately 3-percent growth in fiscal 2019 and 2020, Mohsenian said. Encouragingly, this level of growth should be sustainable over the longer-term due to a combination of improving breadth of performance and lower promotional activity, he said. 

Second, gross margin expansion is likely to occur in the back half of 2019 into 2020 due to recent price increases that are resonating well with customers, the analyst said. Procter & Gamble will benefit from lower commodity and input costs, he said. 

Finally, recent cultural and organizational changes reduce complexity at the management level and create a "more agile" entity, Mohsenian said.

The ongoing changes continue to improve the company's organization could create a path toward bull case organic topline growth of 3.5-4 percent, according to Morgan Stanley. 

Price Action

Procter & Gamble shares were trading down 0.23 percent at $96.27 at the time of publication Friday. 

Related Links:

Procter & Gamble Is Beginning A Turnaround, BofA Says In Upgrade

An Upgrade For A Defensive Sector

Latest Ratings for PG

Jan 2019BerenbergUpgradesSellHold
Jan 2019Evercore ISI GroupInitiates Coverage OnOutperform
Jan 2019Bank of AmericaReiteratesBuyBuy

View More Analyst Ratings for PG
View the Latest Analyst Ratings

Posted-In: Dara Mohsenian Home Care Morgan Stanley personal careAnalyst Color Upgrades Price Target Analyst Ratings Best of Benzinga


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